“WTF, Gwen!? You’re doing all this work for only $300 a month? A cap rate of 4.64%?! That’s a ter­ri­ble deal! I thought your num­bers were way bet­ter than that!”

Woah. Easy. Take a deep breath.

I’ve run the num­bers for the first year where I will be liv­ing free of cost. The unit I’m occu­py­ing pre­vi­ous­ly went for $385/mo. That’s $4,620 not leav­ing my pock­et, but also not enter­ing my pock­et because I can’t rent it out. If I run the sce­nario above includ­ing my stu­dio unit, the num­bers get bet­ter.

Cash Flow: $740.66 per month, or $8,888 per year

Cap Rate: $8,888 / $100,000 = 8.89 per­cent

8.89% > 4.64%

“I guess those are decent num­bers then.… so how did you find this income pro­duc­ing prop­er­ty?”

My city is split in the mid­dle. I chose to focus on the west­ern half only. Of that west­ern half, I focused on just a few zip codes. I start­ed watch­ing the list­ings as soon as I knew I’d be mov­ing to the area. This helped me get a feel for the local mar­ket and let me see what comps were going for. Once I found a real­tor, he added my para­me­ters to a pro­gram that spit me an email every time a new prop­er­ty came on the mar­ket that met my require­ments.

My require­ments for a prop­er­ty were:

met the 1% rule

good shape

at least one unit emp­ty

move-in ready

no pool or oth­er time/resource inten­sive land­scap­ing

I also checked out the local crime sta­tis­tics on the gov’t web­site and Tru­lia to make sure the area wasn’t rid­dled with crime. Noth­ing more than pet­ty crime in the area, so we’re good there. I will just have to remem­ber to lock my car doors (which I do any­ways).

I would love to share pho­tos, but most of the prop­er­ty is already rent­ed! To pro­tect my tenant’s pri­va­cy, I’m only going to post the ones I took of the out­side, my unit, and the com­mon areas. Note also that these are very much the before pic­tures. I have one 8 mil­lion or two small things to update. It’s going to be gor­geous when I’m all done though!

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“I see you not­ed the con­di­tion as good.… can you explain more about that?” Absolute­ly. Thanks for ask­ing!

For a house that’s 107 years old, she’s in pret­ty great shape! The roof was redone in 2008 and looks great. The foun­da­tion is also in good shape for being a bunch of rocks stacked on one anoth­er. It’s every­thing else in between the roof and foun­da­tion that needs some TLC.

Ok, that’s not fair. More stuff is fine and doesn’t need atten­tion than the amount of stuff that does. But boy howdy, the stuff that needs some atten­tion will be a doozy. I need to redo the gut­ters, replace rot­ten wood­en exte­ri­or boards/shakes, paint every­thing, take a tree limb down, redo the back stairs, and fin­ish the attic.

Of those items, the back stairs and fin­ish­ing the attic can wait. I will have to do the back stairs next year. Fin­ish­ing the attic.….. I’m not sure that will hap­pen. It’s unnec­es­sary. The stu­dio works just great with­out it. I want to fin­ish it so I can have some more space beyond the 12′ x 13′ room I have now. We’ll see. Depends on if I can do it DIY or hire my friends to do it on the cheap for me.

Some of the exist­ing fea­tures of the house will need to be replaced as well. Every­one who’s looked in my bath­room has blanched at the state of the toi­let. It works, and doesn’t leak, so I don’t care. But, it will need to be replaced before I get new ten­ants in it.

Same thing with the stove. I’m pret­ty sure it was around in the Carter admin­is­tra­tion.

The wash­er and dry­er in the unit down­stairs will also need replaced at some point. The cur­rent ten­ants have insist­ed the wash­er and dry­er there now work just fine, but if they ever leave I’m replac­ing them.

One day.…. one day this house will be restored to her for­mer glo­ry and I will be so hap­py. Until then, I’ll just tack­le one thing at a time!

Shout out space:

Thank you SOMUCH to the fol­low­ing peo­ple for all the encour­age­ment, inspi­ra­tion, and prac­ti­cal advice. I lit­er­al­ly could not have done it with­out these amaz­ing folks behind me. I high­ly rec­om­mend read­ing all of their stuff on real estate, as this is every­thing I used to find and buy my prop­er­ty. (and Big­ger­Pock­ets. Can’t for­get them!)

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The house looks great! Lots of char­ac­ter. I nev­er remem­ber to think about all the oth­er costs asso­ci­at­ed with own­ing a house. The list just goes on an on…I am curi­ous about why you chose to use a PM com­pa­ny when you will be liv­ing on site (I would have done the same, I just won­der what your rea­son­ing was). Also, do you know why it is so cheap? 10% seems weird­ly low, and it also seems to be the nor­mal rate. How do the com­mu­nal areas work, like the kitchen? Do the ten­ants get along?

If you didn’t put 20% down, does that mean you’re pay­ing PMI on the house? That insur­ance cov­ers the bank, but comes out of your pock­et until you (gen­er­al­ly) get 20% of the house val­ue paid off.

You can call me any­time! So excit­ed for you and can’t wait to fol­low along on this prop­er­ty (and oth­ers). I think you just passed 99% of peo­ple who are inter­est­ed in real estate but haven’t actu­al­ly secured their first prop­er­ty. Great work! Curi­ous, is the attic attached to the stu­dio? How do you get up to it?Julie @ Mil­len­ni­al Boss recent­ly post­ed…10 Ways to Trav­el The World With­out Quit­ting Your Job

The stairs to the attic are in the stu­dio. So if I fixed the attic up, I could charge more for the stu­dio even though it wouldn’t be up to code and total­ly shouldn’t have beds up there (since there is only one point of egress and not two).

Con­grats Gwen! Thank you for the shoutout. I believe this prop­er­ty will serve you well as your first house hack/investment. Can­not wait to see where real estate takes you! (Hint: it starts with F and ends with I).

Thank you! My plan for now is to live here for a year. Since I got the VA loan, I have to live in it for a year before I can move some­where else. As for choos­ing the stu­dio.…. it was the only one open when I bought it!

Con­grat­u­la­tions, Gwen! That’s excit­ing stuff… though I will say I’m a lit­tle jeal­ous! 🙂 I’m look­ing for a third prop­er­ty and haven’t been able to make one work with my num­bers for a few months now. 🙂

Smart move plan­ning for prop­er­ty man­age­ment fees out of the gate. Even if you man­age it your­self now, it’s good to have that in the num­bers for down the line. Con­grats on your invest­ment!

Con­grat­u­la­tions and good luck! The prop­er­ty is ridicu­lous­ly cheap. Our small­er duplex cost more than 5x. The house looks awe­some. The stair case looks almost the same as our duplex. That square post (what ever it is call) looks exact­ly the same. I think you’re under­es­ti­mat­ing the repair and main­te­nance. Old hous­es like that always need a lot of work..

Nice job on adding an income stream and get­ting into real estate! I’m inter­est­ed to see how liv­ing side by side with your ten­ants turns out. I can see that work­ing out real­ly well, but maybe some draw­backs?Daniel Palmer recent­ly post­ed…Bud­get­ing Visu­al­ized

I actu­al­ly did the same cal­cu­la­tion as you until my friend remind­ed me cap rate is before debt ser­vice. It’s a met­ric meant to com­pare returns with­out lever­age involved, so I had to run the num­bers with­out my mort­gage in it. Every­thing else stayed the same.

This is great Gwen! I am clos­ing on my first rental invest­ment and I plan to release the num­bers soon! It’ll be inter­est­ing to com­pare our two invest­ments — my sin­gle fam­i­ly and your mul­ti-fam­i­ly. I searched for a mul­ti unit here but unfor­tu­nate­ly they are not com­mon in my city :/CentsOK recent­ly post­ed…On the Hunt for a Mort­gage Lender

Looks like a fan­tas­tic deal! This is *exact­ly* how I would approach it if I lived in the land of afford­able real estate, too. I’d love to house hack! When the inevitable annoy­ances of ten­ants demand­ing things that aren’t in the lease, being late on rent, and cap­i­tal expens­es hit, just repeat to your­self, “I’m liv­ing here for free… I’m liv­ing here for free… I’m liv­ing here for free!”

Con­grats Gwen! Very excit­ed for you. And nice that you were able to find a rea­son­ably price prop­er­ty with some good return met­rics even con­sid­er­ing you’ll be liv­ing in one of the units.

Lis­ten­ing to Chad Car­son on the Mad­FI pod­cast was good inspi­ra­tion a month or so ago. Part of me wish­es I would have done a live-in rental unit to help get oth­ers pay the mort­gage and get a return, but those days may be behind me. Even­tu­al­ly I’d like to have some rentals though.

Now I’m going to take myself off to a cor­ner to weep qui­et­ly for a bit about the fact that my house while small­er in terms of square footage cost about 10x.

About liv­ing in a stu­dio: I did that for over a year (but not quite two) in San Fran­cis­co. Here are some tips:

1. Be tidi­er than you have ever been before. A clut­tered stu­dio, with no way to escape from the mess with­out hun­ker­ing down in the loo, is hell.

2. I hung a rack from the ceil­ing of my kitchen, and anoth­er shelf with hang­ing space on the wall. This gave me plen­ty of space for kitchen stuff, and ensured that I couldn’t use lack of kitchen space as an excuse for not cook­ing.

3. I used Ikea blinds that I hung from the ceil­ing to enclose my sleep­ing area and make it seem sep­a­rate and very, very cozy.

4. I had an Expe­d­it Ikea shelf that was about 6 feet long and 6 feet high and divid­ed into 25 cubes. So. Much. Stor­age.

Yeah! Thanks for the shout out…I can’t wait to get my grub­by hands on that effi­cien­cy!! We will make every­thing work effi­cient­ly. 😉 Love all Mrs BITAs ideas — she’s a smart cook­ie!! I have 10 years stu­dio expe­ri­ence and if any­thing is true it is her #1. Get rid of all non essen­tials that don’t make you hap­py. All the crap we col­lect that has no real mean­ing. Doing that alone will help to be able to store the things that tru­ly mat­ter. I can’t wait to come see it in per­son!!Miss Mazu­ma recent­ly post­ed…Shift Your Per­spec­tive & Cre­ate New Habits

Con­grats — I know Paula wrote some great arti­cles on kitchen rehab­bing for cheap so that may be the next step while you’re liv­ing in the stu­dio. You can always rehab it and then move into the next one and do the same thing. I didn’t see util­i­ties on there for the CF state­ment — on my mul­ti-unit prop­er­ties I’m respon­si­ble for sewer/electric/etc so just want to make sure you’re includ­ing those in there. But cap rate hon­est­ly looks great regard­less and now you’re liv­ing rent free!

The kitchen is fine, now that the oven is there. I added a kitchen island on the oth­er side so I have counter space and a draw­er for uten­sils!

Good call about the util­i­ties. I’m respon­si­ble for the house line gas/electricity, sew­er, water, and trash. No idea how much that will be. I also need to include yard work. I have no idea how much each of those are, so I’m wait­ing to get actu­al num­bers on those before I include them.

Hi there, pret­ty amaz­ing what you’re doing at your age! Which city did you pur­chase in??? I’m in CA where a home for mid-$300Ks in a town 2hrs from a met­ro­pol­i­tan area would be con­sid­ered afford­able!!!